Rocket oligopoly
An article on the website Human Events ("Air Force Launch Program Is Monopoly of Cosmic Proportions", 12/6/05) describes not a current monopoly but a duopoly in the aerospace industry that would like to be a monopoly. The article notes a recent switch in the awarding of US Defense Department contracts for rockets in the program to lift satellites into orbit.
In fact, the only two viable competitors for a US defense-oriented rocket are Boeing and Lockheed Martin, the two standing aerospace giants. The idea that even in this duopoly, there was room for some competition on price. But the new policy is outlined by the article: "Rather than awarding the contracts competitively based on price, the missions were instead individually assigned 'in order to keep both rocket makers viable.'" These contracts are notorious cost-plus contracts, where the government will pay for the cost of the rockets and add a percentage for profit. No incentive, then, for controlling costs.
It's bad enough that the government basically surrendered to these big companies. As we have pointed out, Boeing especially has a history of fraud, cost overruns, and making sweetheart deals with government buyers. Boeing was caught in a massive case of industrial espionage, stealing plans from Lockheed Martin's rocket division, allowing it to underbid Lockheed on a large number of rocket contracts. It was suspended by the Defense department from bidding on the rocket program for over a year. And a Government Accounting Office that both companies have cost overruns equaling over 70% of the original $18.8 billion budget.
So how did the duopoly react to the relaxation of any need to complete seriously on price? They formed a joint venture, to insure that absolutely no competition could take place. As the article says,
Just two months later, rather than continuing to compete with each other, Boeing and Lockheed Martin proposed merging their government launch businesses to form the United Launch Alliance (ULA) with the Air Force's support." In other words, the opportunity for real fraud and price gouging will be magnified, and the need for efficiency and innovation would go out the window.
A big side benefit for Boeing is that the venture would mean that Lockheed would drop a multimillion dollar lawsuit for theft of trade secrets. It would also make teh two companies less keen competitors in other areas, like defense airplane construction.
Right now, the approval process for the joint venture is in the hands of the Federal Trade Commission, which has postponed a decision on the matter. On reason is an antitrust lawsuit from a possible competitor, as documented in Space News ("Boeing-Lockheed Rocket Merger Sparks Concern, Legal Challenge", 10/24/05):
On Oct. 19, Space Exploration Technologies Corp. (SpaceX), the rocket startup founded by Internet tycoon Elon Musk, sued Boeing and Lockheed Martin in the U.S. District Court for the Central District of California, charging that the companies have conspired to violate anti-trust laws to corner the market on U.S. government launches. While SpaceX's concerns predate the May unveiling of plans for ULA, the lawsuit specifically seeks to block the merger.
Another complainant is defense giant Northrop Grumman, which does not build rockets, but competes with Boeing and Lockheed Martin but which competes with those companies in designing and building satellites. Of particular concern is a set of contracts now been bid on for weather satellites, in which Northrop fears that the launch vehicles could be designed in such a way to give its opponents an advantage.
And there are less expensive overseas competitors in rocket launching: In Europe, in Russia, in Japan, and in China. Naturally, defense-oriented satellites couldn't be sent up by foreign companies, but there are plenty of non-military launches coordinated by the Department of Defense.
It will be interesting to see if the Bush administration FTC has the cojones to stand up to the Bush administration defense department. If the ULA venture is allowed to go through, what remains of antitrust law?
